Continued Yen Depreciation, Steady Pace Makes Intervention Timing Difficult to Gauge
This week has seen a continued depreciation of the yen. USD/JPY has risen to around 161.90, marking new 37.5-year highs. However, the price movements have been relatively small, and the intraday volatility has not been drastic.
Today, cross-yen pairs are also showing strong performance. EUR/JPY is moving towards 174 from the high 173 range. GBP/JPY has broken into the 205 yen range. AUD/JPY has risen to around 108 yen, and CAD/JPY has climbed into the 118 yen range.
The market seems to be gaining confidence in carry trades based on interest rate differentials between Japan and the U.S. or Japan and Europe. Unless there is a sudden phase of rapid yen depreciation following an event, the government and the Bank of Japan (BoJ) seem to find it challenging to identify the timing for yen-buying interventions. Based on past cases where USD/JPY breached the 150 yen level, levels like 163 yen and 165 yen are likely to be watched after the recent break above 160 yen. If interventions are not undertaken at these levels, the next psychological level of 170 yen may come into focus. However, a single intervention is unlikely to result in a yen appreciation of more than 5 yen, indicating potential delays in effective intervention.
Upcoming economic indicators to be released in the overseas market include the U.S. MBA Mortgage Applications Index (06/22 - 06/28), U.S. Challenger Job Cuts (June), U.S. ADP Employment Change (June), U.S. Trade Balance (May), U.S. Initial Jobless Claims (06/23 - 06/29), U.S. Factory Orders (May), U.S. Durable Goods Orders (Final) (May), U.S. ISM Non-Manufacturing PMI (June), and Canada International Merchandise Trade (May). Key highlights will be U.S. employment-related indicators and non-manufacturing (services) indicators from various countries. However, with the U.S. Independence Day holiday tomorrow, market reactions might settle down after an initial flurry, leading to a wait-and-see mood. It may also be difficult to tilt positions significantly ahead of Friday’s U.S. employment report.
Regarding speaking events, ECB Vice President De Guindos, ECB Board Member Panetta, ECB Chief Economist Lane, NY Fed President Williams, and Netherlands Central Bank President Knot will participate in the ECB Forum 2024. ECB President Lagarde is scheduled to deliver the closing remarks. In a series of statements yesterday, the predominant tone was cautious on rate cuts despite maintaining a downward trend in inflation, with persistent service inflation noted. The FOMC minutes will be reviewed in the latter half of the NY session.
Today, attention will be on the movement of the U.S. dollar following the U.S. ISM Non-Manufacturing PMI.
If there is an intervention in USD/JPY, I plan to buy at the dip.
